Europe Cargo Flat As Capacity Abounds

     The European air cargo industry isn’t getting off the ground easily this year, as a glut in capacity and relatively stable exports are keeping purchasing and pricing flat while costs like kerosene are stabilized but still up. The message for companies that want to save some money shipping seems to be: If you’ve got it in Europe move it now. It looks like a buyer’s market.
     Economists at the International Air Transport Association in Geneva predict there will only be about 5% growth in global air cargo tonnage this year to about 27 million tons. The group sees annual cargo tonnage growth remaining basically flat – at under 5% until 2010 - with the exception of Middle East and Asia, which are seen as somewhat busier - at about 6% growth. Still, with capacity ever on the rise, even mediocre growth in tonnage is not going to help falling or flat pricing of late.
     “We have to wait and see what happens in the next few months,” said Lorne Riley, a spokesman at IATA.
     “The Middle East for instance, is adding a lot of freight capacity and at this point it’s difficult to see how that capacity will fit demand.”
     He wouldn’t say how IATA sees that affecting cargo pricing.
     “We project that overall global aircraft deliveries will be up 5.9% in 2007, with more than 50% of that capacity going to Asia,” Riley said.
     A further expansion in Asian, Middle Eastern (or other) capacity could soften air cargo pricing even more, especially if exports slip, or if there is a regional or more widespread economic downturn there or elsewhere in the world. Fortunately for Asia, (and everywhere else), that doesn’t look set to happen, as markets everywhere have been showing improvements of late.
     (The recent drop in world indices as a result of the Shanghai Sneeze should turn out to be just a bump in the road.)
     “The general trend of the last several years hasn’t changed much, and we’re still seeing a soft market,” said Charles Devos, a business development manager at Trans Val Air, a forwarder operating out of London’s Gatwick Airport.
     The company also services Heathrow and has offices in Dubai.
     “Both air freight and sea freight shippers are struggling to fill containers; and (in general, in the U.K. and continental Europe) rates have plummeted,” Devos said.
     “Forwarders have been trying to correct that with things like fuel surcharges.” He called some of the pricing of late “ridiculous.”
     Devos says however, that Trans Val’s business has remained robust because it’s a niche forwarder that has kept its attention on customers and the details.
     Large shippers and integrators like DHL, FedEx, TNT and UPS haven’t helped the business of small forwarders either, Devos says, as now more than 50% of the air export volume from the U.K. is serviced by those large public company players.
     “It’s the same scenario in (continental) Europe; it hasn’t done our business any good. Times are tricky.”
     Peter Winter, an export manager for Germany at Kuehne & Nagel in Frankfurt, could just be one such large logistics player Devos is referring to that are putting the heat on smaller forwarders.
     Winter agrees even for Swiss-based Kuehne & Nagel, purchasing at Frankfurt is slow, capacity is up and pricing is flat at best.
     But still, he foresees 8% to 10% growth in tonnage out of Frankfurt this year because of new local business he expects to get.
     “The market will grow somewhat, especially in the second half of the year,” Winter said.
     “On European routes to the U.S. and South America especially, there’s room for improvement,” while Asia is showing better demand than the rest of the market, he said.
     “Airfreight rates are seeing a lot of downward pressure, and that probably won’t change this year,” Winter said, adding that he thought cargo prices could have a way to go before hitting absolute rock bottom.
George Frey